Washington, D.C., Office Market Showing Signs of Stabilization

Washington, D.C. office leasing is on the upswing for the first time in a year. Not surprisingly for the District, the rise in leasing activity is driven primarily by expanding federal agencies. A study by CB Richard Ellis of fourth quarter leasing activity showed that the private sector is again leasing space they had subleased in late 2008 and early 2009, a sign that they might be on the verge of rehiring laid-off employees. According to the report, the amount of vacant space shrank 715,384 SF during the fourth quarter. That is a major change from the third quarter, when vacant space grew by 375,558 SF.

Vacancy rates reached a high of 11.8 percent last year, thanks to the region’s net loss of 24,000 jobs and new office buildings coming on line. Now, commercial real estate brokers are seeing new interest from law firms, associations and financial service firms wanting to lease space. Some are planning for future growth, while others are taking advantage of large discounts being offered to attract new tenants. “We have clients call and say maybe this is the time to go into the market and see what’s available,” said Ernie Jarvis, managing director of CB Richard Ellis’ Washington office.

Approximately 32 percent of commercial leases are with the federal government, an increase over the 21 percent reported in recent years. In normal years, the government has three of the top 10 transactions in the region; that rose to eight in 2009. These include 802,000 SF leased by the Department of Health and Human Services in Rockville, MD; 503,000 SF leased by the Drug Enforcement Administration in Pentagon City, VA; and 360,000 SF leased by the Nuclear Regulatory Commission in North Bethesda, MD.